Imports are killing local industries

Industrialisation Cabinet Secretary Adan Mohamed (second right), Principal Secretary Wilson Songa ( third right) and Managing Director Guy Jack tour the Associated Battery Manufacturer (East Africa) Ltd plant in Nairobi last month when Mr Adan launched free battery maintenance. [PHOTO: MURAGE WAWERU]

Kenyans are pinning their hopes on the Ministry of Industrialisation and Enterprise Development, as it grapples with issues that have bedeviled the manufacturing sector over the past three decades.

A closer look at the sector reveals that it began losing ground as soon as the economy was liberalised in the early 90s to allow imports of goods that were, or could be manufactured locally.

A recent World Bank report reveals that the sector is facing three major challenges that deserve immediate attention if the country is to attain Vision 2030.

Although the Government can and should, tackle two of them, the private sector has to be encouraged - with the appropriate carrots and sticks as necessary to deal with the others.

The Industrialisation ministry must lead the Government, especially Treasury - in rationalising tariffs, some of which are so distorted that they favour imports over locally produced goods.

The problem is acute in the paper and wood sector. The systemic collapse of Webuye Paper Mills opened the flood gates for the importation of paper, mainly from Asian countries. It has not been lost on observers that foreigners managed the factory.

The fact that government and parastatals are the largest buyers of goods and services means the onus is on the public sector to ensure it buys locally, as part of its strategy to grow the local economy.

It should not be enough to argue that imports are cheaper when a closer look reveals that the country is exporting jobs and its hard-earned wealth, every time it imports what can be produced locally.

Strengthening ties

But even more ironically, importing goods from Asian countries in some way strengthens their ability to wrestle control of the regional market from local firms.

That this has already happened is borne out by the recent World Bank report, which shows that Kenya’s share of the East African Community market has fallen from nine per cent in 2009 to seven per cent in 2013.

Secondly, the Industrialisation ministry has to reduce the cost of doing business. Whereas it is acknowledged that the ministry - and the rest of government, have done more in the last two years than was done in the past five decades, the consensus among economic and business analysts is that it can do more.

The continued reduction of the cost of electric power is a step in the right direction. But the tragedy for the country is that some manufacturers are yet to see the wisdom of adopting latest technologies that would reduce these costs further, although they are both readily available and relatively cheap.

More relocation

This behaviour is symptomatic of investors interested only in short-term returns as they prepare to relocate to other countries. A walk through factories in Nairobi’s Industrial Area reveals an abundance of this type of investor, whose work-force is poorly skilled and lowly paid that it lives in one slum or another, and has to walk to and from home every day.

It goes without saying that such a work-force has no incentive or, indeed, ability, to do more than enough to remain on the job. The result is the production of a few low quality goods, which have no chance of competing even in the regional markets.

Returns on investment

The tragedy for the country is that it supports these types of investors, by keeping them in business when common sense dictates they should have made way for the more efficient ones who are truly committed to making decent returns on investment, while also creating quality employment opportunities and paying decent wages.

Third, because the private sector has proved incapable of carrying the burden the public has placed on it, the Government should go back to the drawing board and craft a strategy that will bring other players into the industry.

One way would be by dusting off the industrialisation plans that were written immediately after independence, and implementing them with the benefit of hindsight.

This would mean the restructuring of such institutions as Kenya Industrial Estates, Industrial and Commercial Development Corporation (ICDC) and Kenya Industrial Research and Development Institute (KIRDI). Time will tell if anyone is listening.